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DiscWeek2Chapter1Revised

DiscWeek2Chapter1Revised - Discussion Week 2 Chapter...

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Discussion Week 2: Chapter 1 1 (Revised Version) February 3, 2008 Scarcity: The idea that our wants exceed what we can attain with our limited resources. (Example: I want a Cadillac Escalade, but I am a TA). Without scarcity, there would be no need to study economics. Note : Limited resources take many forms. For example, it is currently midnight and I have class at 9:30 a.m. My time is a limited resource as I have to finish this handout, get ready for class and get some sleep. The idea of economics is that people have to make tradeoffs between their choices, based on scarce resources, and economists study how people make those decisions to maximize their happiness. Opportunity Cost: The full cost of picking one choice over another Example question: Cheri earns \$10 an hour as a tour guide for her university. She is scheduled to work for eight hours on Friday, but is considering calling in sick so that she can go see her favorite a cappella group perform. A ticket to the show will cost her \$30, plus \$5 for transportation costs. What is Cheri’s opportunity cost if she decides to see the show? Answer: Cheri’s opportunity cost of seeing the show is \$115 dollars. This includes the \$80 she could have earned working, plus the \$30 for the ticket, plus the \$5 in transportation costs. Recall the definition o f opportunity cost is “the real cost of an item, including what must be given up to obtain it.” (Krugman 2 ) If Cheri had decided to work instead of seeing the concert she would have earned \$80, and she would still have the \$35 (the cost of the show and the transportation cost to the show) to spend later.

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